While much of the write-downs by single-commodity independent producers were largely expected, the price slump has started taking toll on the likes of BG Group and Canada’s Encana. Analysts say BHP Billiton, with its $20 billion top-of-the-market shale purchase could be next.
Many say BHP may write down as much as $2 billion from its $5 billion purchase of Chesapeake Energy’s assets, as early as the end of this year when the book values have to be ruled off.
The latest to be slayed by low natural gas prices in the US was BG Group. Its profits slumped on the back of a $US1.3 billion post-tax write down of its shale assets.
The company’s second quarter net profit was down 77% to $283 million.
“There are certain dimensions of the US economy that are not particularly positive,” BG chief Frank Chapman said pointing out that lacklustre US retail consumption caused concerns over global growth.
The increasing abundance of natural gas supply due to the boom in shale gas also had a negative impact on natural gas prices, with companies struggling to keep cash flows in place.
BG has lowered its outlook on the US gas price to $4.25 per million British thermal units, down 75c, while Henry Hub futures for August delivery closed at $3.07/MMBtu.
Earlier in the week, Canada’s Encana posted a whopping $1.5 billion net quarterly loss after it booked a $1.7 billion non-cash impairment.
Even those lucky or diversified enough to not have to write down assets still had their quarterly earnings dented by the shale glut. Both ExxonMobil and Shell’s results were overshadowed by US natural gas prices.
Shell reported a second quarter earnings fall of 13% to $5.7 billion compared with $6.6 billion a year ago, with the company realising 52% less in natural gas prices this year.
Even the usually resilient ExxonMobil’s earnings displayed its exposure to the burden of falling natural gas prices with earnings from its US upstream divisions plunging more than half to $678 million.
Many analysts say that with the falling gas prices, many companies will have to restate and rebook economic reserves, which could lead to significant reserve writedowns.
With the US Securities and Exchange Commission investigating companies over reserve reporting methods, it appears shale players are headed for tougher times.
This article first appeared in ILN's sister publication EnergyNewsBulletin.net.
